–Foreign Banks:Gara Afonso, Alex Entz, and Eric LeSueur ask who is borrowing in the fed funds market, and find it is largely foreign banks. “In sum, to look for answers to our initial question of who’s currently borrowing in the fed funds market, we can’t just look at domestic institutions; we also have to focus our attention on foreign institutions—in particular, on European, Asian, and Canadian banks. These institutions are key players in a market that’s crucial for implementation of U.S. monetary policy. Many reasons explain their predominant role in this market, including institutional frictions and differences in regulation and requirements. More research is needed on this topic to better understand the implications of the fed funds market’s composition.”

–College Premium:Nancy Folbre says the premium for a college degree may be shrinking. “Adjusted for inflation, median earnings for young men with a bachelor’s degree or higher in 2011 were significantly lower than they were in 1971. Young women have slightly improved their position (by $630) since 1971. But as a comparison between the two graphs shows, their median is still lower than that of male high school graduates in 1971. The College Board report that provides the basis for the charts above shows that the trend in real earnings of young college graduates is worse if restricted to those with a bachelor’s degree alone, but the historical time series for that category doesn’t go back as far.”

–Corporate Profits:Ed Yardeni charts rising corporate profits. “On a pre-tax basis, profits of nonfinancial industries rose 8.1% y/y to a record high of $1.24 trillion (saar) during Q3. Financial industry profits rose to a record high as well, but were up only 3.0% y/y. The FDIC’s latest Quarterly Banking Profile showed that banks continued to lower their provisions for loan losses and net charge-offs to the lowest readings since before the Great Recession. There may not be much more room for banks to boost their earnings in this manner.” Read More »

–Peak Oil:James Hamilton says the peak in world oil production is still yet to come. “World oil production stagnated between 2005 and 2007, which given rapid growth in demand from emerging economies sent oil prices shooting up. Some observers suggested that production might never rise much above the levels seen in 2005. Among those who raised this possibility, two of the more thoughtful have changed their mind. Euan Mearns last month summarized what he saw as three (or four) nails in the coffin of peak oil. And Stuart Staniford, an early editor and contributor for the Oil Drum, declared a few weeks ago that the data have spoken. Certainly world oil production did not stop growing in 2005. Last year’s total was estimated by the EIA to be 4.8 million barrels higher each day than it had been in 2005.”

–U.S.-Euro Zone Divergence:Antonio Fatás says the big difference between U.S. and euro zone growth is clear. “The chart above is just a reminder of how strong the evidence is in favor of the hypothesis that fiscal policy can explain most of the relative underperformance of some economies in the post 2008 period. The evidence is certainly much stronger than any of the factors that Buti and Padoan present. But somehow fiscal policy did not make it to their list of top three factors.”

–Subsidizing Spouses:Nancy Folbre notes how the tax code subsidizes nonworking spouses. “The federal tax code and Social Security both contain provisions that subsidize marriage if one spouse refrains from paid employment. Critics of such provisions have long noted that they discourage married women’s participation in the labor force. They may have a similar effect on married men, especially given recent increases in the percentage of married mothers who earn more than their husbands (more than 23 percent in 2011). At first glance, the debate over such subsidies looks like a clash between those who want to support families and those who want to tax people as individuals. A closer look, however, shows that pro-marriage policies are not necessarily pro-family policies, because they don’t consistently reward effort devoted to caring for dependents such as children and the elderly.” Read More »

–Labor Force Participation:Julie Hotchkiss on the Atlanta Fed’s macroblog weighs in on the debate over the labor force participation rate. “In addition to changing demographics (which have, for example, been associated with a rising share of retirement-age individuals in the total population) and cyclical effects (for example, the tendency for participation to fall when wage growth is tepid or job opportunities scarce), there are also behavioral changes afoot—a point Casselman makes in his final installment of the Post/WSJ debate. For example, individuals of near-retirement age may extend their participation as a result of significant, unexpected declines in wealth. Or women with young children—a demographic group typically less likely to participate in the labor market—may increase participation if a partner loses a job during an economic downturn. In both cases, participation rates for these demographic groups would not fall by as much as expected in response to high unemployment rates alone. Work that I’ve done with Fernando Rios-Avila, a colleague at Georgia State University, finds that more than 100 percent of the fall in the LFPR since 2008 is accounted for by the condition of the labor market (cyclical factors), but these particularly strong cyclical forces were countered by increased tendencies to participate (behavioral changes). In other words, if individuals hadn’t stepped up to the plate and exhibited even stronger labor force participation behavior than before the recession, the LFPR would be even lower than it is.”

–Small Business:Nancy Folbre looks at the best way to support small business. “The state of Texas touts its success in luring large companies from other states, offering generous tax subsidies financed by cuts in spending on local education, infrastructure and other public services. But critics of the Texas model contend that corporate relocations have had a “microscopic” impact on the state’s economy. Meanwhile, alternative economic development strategies are gradually gaining traction. Littleton, Colo., a suburb of Denver, has pioneered an “economic gardening” approach that rejects a “hunting” model in favor of growing its own small businesses, providing supportive services and planning assistance. Its success has inspired pilot projects in several states, including Florida, Iowa, Kansas and Louisiana. The Colorado legislature is currently considering a statewide pilot project.”

–Liquidity Trap:Nicholas Crafts takes lessons from the U.K.s 1930s escape from a liquidity trap. “The UK escaped a liquidity trap in the 1930s and enjoyed a strong economic recovery. This column argues that what drove this recovery was ‘unconventional’ monetary policy implemented not by the Bank of England but by the Treasury. Thus, Neville Chamberlain was an early proponent of ‘Abenomics’. This raises the question: is inflation targeting by an independent central bank appropriate at a time of very low nominal-interest rates?” Read More »

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